Deferring capital gains - real estate - Only in America, Not in Canada you say. Pity!
We have just recently sold real estate at a profit. If we purchase another
> investment property, can we defer paying capital gains?
> I found reference to this for the US but not Canada.
>
> Personal situation:
> Bought bare lot in 1993. Sold at $100,000 profit recently.
> Husband relocated to another city. Would like to buy home to live in but
> principal residence will continue as original (family not moving).
> May also take in boarders/roommates - what is tax implication?
>
> Is there a time limit to purchase another property from the sale of the lot
> to quality for capital gains deference?
> Is there a form that needs to be filled out?
> Are there advantages to doing this, or disadvantages, or better options?
>
> Can you guide me to website or information re Canadian tax laws in this
> regard.
>
>
> This is the information I found regarding US law:
> Capital Gains Tax
> One of the reasons people choose to use a 1031 exchange is to defer paying
> capital gains tax on their business or investment real estate. Capital gains
> tax is defined as the tax levied on profits from the sale of capital assets.
> Section 1031 of the Internal Revenue Code provides for the deferral of
> capital gains taxes with a tax-deferred exchange. A tax-deferred exchange or
> a like-kind exchange is a method by which a real property owner can sell his
> property and then reinvest the proceeds in ownership of like-kind property
> and defer the capital gains tax.The process gives the 1031 exchanger more
> buying power because the capital gains taxes are deferred. Capital gains
> taxes on the sale of the property are deferred until the like-kind property
> is sold at a future date. To estimate your capital gains, use our capital
> gains calculator <http://www.spectrusgroup.com/cgcalc.aspx?ct=26>; . This
> calculator will help to determine the amount of capital gains tax due if you
> were to sell your property. However, this information is not intended to
> replace qualified legal and/or tax advice regarding capital gains taxes.
> Each buyer should review any investment or transaction with their own legal
> and/or tax counsel to determine the amount of capital gains they owe. To
> qualify as a like-kind exchange and avoid capital gains taxes, property
> exchanges must be done in accordance with the rules set forth in the tax
> code and in the treasury regulations. In order to defer all capital gains
> tax in a like-kind exchange, the real estate buyer should follow these
> guidelines:
> * The exchange proceeds must be reinvested in the acquired property
> and the acquired property must have the same or greater value.
> * Obtain equal or greater equity in the replacement property.
> * Obtain equal or greater debt in the replacement property or have a
> reduction in debt that is offset with additional cash at closing from the
> taxpayer.
> * Receive nothing except like-kind property.
> Besides deferring capital gains tax, there are numerous other benefits of a
> 1031 exchange. Please visit our 1031 Exchange
> <http://www.spectrusgroup.com/facts1031~ct~11.aspx>; facts page to learn
> more.
>
> Thank you for your consideration.
> _________________________________________________________
> david ingram replies:
Although hinted at in the last election, the Stephen Harper government has not made any motions to bring in a rollover for general Capital gains in Canada.
There 'are' TWO situations where a rollover is possible.
1. The land or property is expropriated by a government authority for the common good. and / or
2. The property is / was used by an active business. Therefore, a car lot could sell its car lot for a profit and buy another because the property was the active business or a tool rental business could sell its building and buy another or a doctor could sell his or her stand alone medical building and buy another. If the doctor used one office out of 25, it would not work because the rest of the building was rented and rental buildings do not qualify although they could use the percentage they used that was active. A feed lot could sell its premises and move out of town to buy another property for its feed lot.
The US 1031 rules have no place in Canada.
As for taking in boarders, you would simply fill in a T776 or a T2124 to report the income.
> investment property, can we defer paying capital gains?
> I found reference to this for the US but not Canada.
>
> Personal situation:
> Bought bare lot in 1993. Sold at $100,000 profit recently.
> Husband relocated to another city. Would like to buy home to live in but
> principal residence will continue as original (family not moving).
> May also take in boarders/roommates - what is tax implication?
>
> Is there a time limit to purchase another property from the sale of the lot
> to quality for capital gains deference?
> Is there a form that needs to be filled out?
> Are there advantages to doing this, or disadvantages, or better options?
>
> Can you guide me to website or information re Canadian tax laws in this
> regard.
>
>
> This is the information I found regarding US law:
> Capital Gains Tax
> One of the reasons people choose to use a 1031 exchange is to defer paying
> capital gains tax on their business or investment real estate. Capital gains
> tax is defined as the tax levied on profits from the sale of capital assets.
> Section 1031 of the Internal Revenue Code provides for the deferral of
> capital gains taxes with a tax-deferred exchange. A tax-deferred exchange or
> a like-kind exchange is a method by which a real property owner can sell his
> property and then reinvest the proceeds in ownership of like-kind property
> and defer the capital gains tax.The process gives the 1031 exchanger more
> buying power because the capital gains taxes are deferred. Capital gains
> taxes on the sale of the property are deferred until the like-kind property
> is sold at a future date. To estimate your capital gains, use our capital
> gains calculator <http://www.spectrusgroup.com/cgcalc.aspx?ct=26>; . This
> calculator will help to determine the amount of capital gains tax due if you
> were to sell your property. However, this information is not intended to
> replace qualified legal and/or tax advice regarding capital gains taxes.
> Each buyer should review any investment or transaction with their own legal
> and/or tax counsel to determine the amount of capital gains they owe. To
> qualify as a like-kind exchange and avoid capital gains taxes, property
> exchanges must be done in accordance with the rules set forth in the tax
> code and in the treasury regulations. In order to defer all capital gains
> tax in a like-kind exchange, the real estate buyer should follow these
> guidelines:
> * The exchange proceeds must be reinvested in the acquired property
> and the acquired property must have the same or greater value.
> * Obtain equal or greater equity in the replacement property.
> * Obtain equal or greater debt in the replacement property or have a
> reduction in debt that is offset with additional cash at closing from the
> taxpayer.
> * Receive nothing except like-kind property.
> Besides deferring capital gains tax, there are numerous other benefits of a
> 1031 exchange. Please visit our 1031 Exchange
> <http://www.spectrusgroup.com/facts1031~ct~11.aspx>; facts page to learn
> more.
>
> Thank you for your consideration.
> _________________________________________________________
> david ingram replies:
Although hinted at in the last election, the Stephen Harper government has not made any motions to bring in a rollover for general Capital gains in Canada.
There 'are' TWO situations where a rollover is possible.
1. The land or property is expropriated by a government authority for the common good. and / or
2. The property is / was used by an active business. Therefore, a car lot could sell its car lot for a profit and buy another because the property was the active business or a tool rental business could sell its building and buy another or a doctor could sell his or her stand alone medical building and buy another. If the doctor used one office out of 25, it would not work because the rest of the building was rented and rental buildings do not qualify although they could use the percentage they used that was active. A feed lot could sell its premises and move out of town to buy another property for its feed lot.
The US 1031 rules have no place in Canada.
As for taking in boarders, you would simply fill in a T776 or a T2124 to report the income.
What's Related